Hi ya'll, we are building our first IP up in Toowoomba and have started considering renting it out to the DHA. 1st time investors and the security of a 9 year lease sound hassle free, but at a 16.5% cost. With plans to invest again shortly, I'm wondering if anyone has any experience or advice on this?
cheers, Scottfredo_4305Participant@fredo_4305Join Date: 2009Post Count: 336
Noooooo don't do it.
really Fredo. Have you had a bad experience from renting a place out to the Defence Housing?Jamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
9 years is a very long time – and it's hard to accurately plan ahead.
DHA leases can seem like a good idea for those starting out and worried about potential rental vacancies. However, a long lease like this can be very prohibitive for the owner. The biggest issue is that if you need to sell up – your restricting your pool of buyers (because you'll probably need to uphold the lease). Secondly, not all lenders like them – some won't lend above 80% Lastly, the management fees can be quite high.
All in all, there's pros and cons – you just need to weigh them up in terms of your longer term plans.
JamieShiny_Suit_ManParticipant@shiny_suit_manJoin Date: 2012Post Count: 54
I think that is good advice from Jamie, one thing to remember is that everyone has different needs and different plans. The point that Jamie raised on how it may limit your market that you can sell to is a valid one as well. I suppose it comes down to how aggressive you are being with your portfolio 10 years is a long time to have a property locked into one lease, however you can use it to your advantage as well. If your structured to keep a property for this long and all the numbers work in your favor i say go for it. You have so many options with what you could do though in regards, i'm sure the people on here will have all sorts of thoughts and opinions for you.
Thanks for the feedback guys. We do plan to hold the property for 10+ years and am fully aware of the 16.5% management fees, but thought there were some advantages with it also. Being a new build, maintenance should be minimal for the first few years, but having that taken care of for 9 years seemed like a good thing, plus they reckon they review the rent each year. Still a while before she's built so got some thinking to do.
Has anyone had any experience actually renting out one of their properties to the DHA? (rather than just buying one of their already established investment properties) Keen to hear how they were to work with, etc and if it is as hassle free as it all sounds.
ScottRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Sure they review the rent but they don't put it up.
You are require to prove to them that the market rent has increased by gaining rental comparisons and if necessary a full rental valuation.
Other issue as Jamie mentioned is many lenders do not like leases longer than 12 months and signing a 9 year lease could be a breach of your mortgage.
Get legal advice before proceeding to much further.
Yours in Finance